Gleadell Market Report - 3rd June 2011
GRAIN MARKETS - David Sheppard, managing director
WHEAT
HGCA confirm the bumper pace of exports and forecast that the country’s wheat surplus (as per their figures) will have gone this month - the tightest ’in the modern era’. Although many believe even this revision may not be the last, as the export projection is 2.44mln/t against the end of March figure of 2.34mln/t with three months still to go. In reality, the Ensus shutdown and lower animal feed usage means there is more wheat available for export than the HGCA are forecasting.
Russian farmers have sown 23.4mln ha with spring grains as of 25th May, or 77% of the targeted area. The figure represents an increase of 2.5mln ha from a year ago in spite of a delay caused by a late spring. Russia PM Putin announced over the weekend that Russia will lift a grain export ban from 1st July, bringing what was formerly the world’s third largest wheat exporter back to world grain markets.
Ukraine has cancelled grain export quotas in anticipation of a rebound in production, approving grain exports duties which will apply until 1st January 2012: wheat 9% but not less than €17 per metric tonne, corn 12% but not less than €20 per tonne and barley €14 but not less than €23 per tonne.
A prolonged drought in China could hit grains output in key growing regions, but plentiful domestic wheat stocks will act as a buffer keeping import volumes low. Last week, CNGOIC projected record corn and increased wheat production.
Analysts see a 2% drop in US corn plantings, with a minor switch to soybeans, due to incessant rain and floods. Some farmers are seen switching from corn, as they are unable to plant it in time for optimal yields (mid to late May).
Wheat values tumbled as investors gave their first reaction to Russia’s decision to lift its grain export ban after forecasting that this year’s harvest will be ’quite good’. Paris futures closed down €13 Monday, followed by a fall in London and in the US on Tuesday when markets reopened after the holiday on Monday. Subsequently, a spot tender by Lebanon was greeted by Russian offers at $70 below US values, only to be undercut by an even cheaper offer from the Ukraine.
Markets saw the ’knee-jerk’ reaction to the Russian news, and many believe that, in the short-term, cheap offers of Russian and Ukrainian wheat may dominate market sentiment and direction. However, medium and long-term, there remains plenty of supply issues relating to new crop wheat and corn. The Black Sea are back and apparently with an agenda.
However, with EU crop prospects wilting in the heat and with US winter/spring crop production far from a certainty, the increased Black Sea supply may, in reality, only offset the potential losses in the EU and US. In summary, the world balance sheet needed the Black Sea and this will soon be realised.
